Dough company manufactures specialized golf clubs in Toronto. Anthony Corporation manufactures sports equipment, including golf clubs, but in Calgary. Anthony has a machine that it exchanges with Douglas Company on January 1, 2011. Below are details of the exchanged assets.
Historical cost of old asset on Douglas’s accounting records…………………….$6,000,000
Accumulated depreciation of old asset on Douglas’s accounting records…………2,100,000
Fair market value of old asset of Douglas “sold” to Anthony……………………..4,250,000
Historical cost of old asset on Anthony’s accounting records……………………..7,200,000
Accumulated depreciation of old asset on Anthony’s accounting records………...3,000,000
Fair market value of old asset of Anthony “sold” to Douglas…………………….4,000,000
Cash paid by Anthony to Douglas…………………………………………………..250,000
Required:
a. Assume this exchange has no commercial substance. Prepare the journal entries to record this exchange for Douglas Company.
b. Assume this exchange does have commercial substance. Prepare the journal entries to record this exchange for Douglas Company.
c. Assume this exchange has no commercial substance. Prepare the journal entries to record this exchange for Anthony Company.
d. Assume this exchange does have commercial substance. Prepare the journal entries to record this exchange for Anthony Company.
e. Examine the journal entry of Anthony Company with no commercial substance (part c). Does any part of the entry look suspect?
f. Where did the “Gain on disposal” for the Douglas exchange go when the transaction was considered to have no commercial substance?